By far the most widely noted and puzzling aspect of the current economic recovery is its failure to create jobs. While payroll employment in seven previous recessions increased a full 7 percent in the first twenty-three months following the National Bureau of Economic Research (NBER) business cycle trough, such employment increased by only 0.8 percent – just over one tenth as much – from March 1991 to March 1993. Part of the explanation of negligible job growth lies in the recovery's relatively slow pace of output growth, which has been little more than one third the usual postwar pace.

The remaining part of the job puzzle stems from the ebullient performance of productivity – that is, output per hour in the nonfarm business sector – which registered a growth rate of 3.2 percent in the four quarters ending in 1992:4, the most rapid rate recorded in any similar period for more than sixteen years. The share of output growth accounted for by productivity growth in the current recovery is 112 percent, far exceeding the 47 percent average of the previous postwar recoveries at the same stage. For any given pace of output growth, more rapid productivity growth by definition implies less rapid growth in labor input. This suggests that the recent revival in productivity growth may be the key to understanding the puzzling absence of job creation in the recovery.